The legislature is considering a 10-year ,$3 billion bond plan for road construction across the state. That is a lot of money, and voters (read: taxpayers) will not have a say in its final approval, which could add as much as $300 million in new debt each year. Putting a bond for roads on the ballot might raise questions about the Connect NC bond package passed in 2016, which sounds like it should have paid for roads, but actually pays for construction at universities, community colleges, the NC Zoo, state parks, and other government-owned facilities.

A vote would have been needed if the legislature followed Treasurer Dale Folwell’s advice to put the “full fait and credit” of North Carolina behind the new debt. Instead, the bonds will be paid from transportation revenue, which classifies them as “Special Indebtedness” that can be passed without a referendum. Special indebtedness was last used to provide startup funds to the NC Turnpike Authority and was rated two steps below the “AAA” credit rating for which state government officials are justifiably proud. In other words, it was riskier than General Obligation bonds backed by the full faith and credit of the state.

Riskier debt is more expensive. Generally, a borrow pays 25 basis points, or 0.25% more with each step down in quality. Two steps would mean half a percentage point, which doesn’t sound like much until you consider that the benchmark 10-year municipal bond is 2.45% as I write this, so the increase would increase the interest payments by more than one-fifth, or about $2.7 million per $100 million borrowed over ten years, in present value terms or up to $80 million for the full debt package.

It is not clear how quickly the bonds would be accessed based on projects in the strategic transportation investment program, or if they would be accessed at all if the Treasurer has to approve each round. Higher costs of borrowing would be an argument against approval each time and also caution against approval of the overall package now. The Department of Transportation made its case for this borrowing in February without consideration of the cost. Prudence would suggest making the debt subject to voter approval in November instead of rushing forward with this more expensive debt.